Crunch time for BOE’s Carney and euro-zone growth: This week in Europe

Last week, European Central Bank chief Mario Draghi took some analysts by surprise by leaving rates on hold, though he did stress the bank’s readiness to act if needed. The Bank of England also stuck to the no-action plan and kept rates unchanged, but — unlike Draghi — bank chief Mark Carney kept extremely quiet about the future of its monetary policy.

That strategy won’t do for long, however, and this week the BOE won’t be able to stay silent. Its quarterly inflation report is out on Wednesday, and there’s increasing pressure on Gov. Carney & Co. to at least say something about forward guidance. With joblessness moving close to the bank’s 7% threshold, analysts are pushing for more details about what will happen when that magical level is reached.

But jostling with Carney for the spotlight is Janet Yellen. The new U.S. Federal Reserve chairwoman makes her first speech as Fed boss this week, and all ears will be cocked to catch any hints on the taper. Throw in readings on euro-zone growth, plus a fistful of Chinese data, and it’s lined up for an eventful week in European financial markets.

Bank of England inflation report: It’s crunch time for the Monetary Policy Committee. For months now, the BOE’s forward guidance has kept tongues wagging. Now, analysts are on the lookout for any rate-framework changes from Carney and pals, when the bank’s quarterly inflation report arrives Wednesday. Recent good news on the U.K. jobs front has stirred talk of a rate hike sooner rather than later: to keep a lid on it, the BOE will have to modify its forward guidance, analysts say.

Brian Hilliard, chief U.K. economist at Societe Generale, said the BOE has five options with updating its framework:

It can lower the unemployment threshold

Publish the individual MPC members’ forecast for a rate hike

Publish a median forecast of the members’ rate expectations

Switch the monitoring to a wider range of labor-market indicators, rather than mainly the unemployment rate. Or

Switch back to the guidance used by former governor Mervyn King, with no threshold and closer to the approach used by Draghi (who just repeats rates will stay lower for “an extended period of time”)

Hillard leans more toward option 4.

“Although the MPC was careful to emphasize from the outset that the threshold was only a staging post at which to reassess the state of the economy, rather than a trigger point for rate increases, the market ignores such nuances,” he said.

Euro-zone GDP: It’s the euro zone’s moment of truth on Friday. Did it keep up the recovery at the end of last year, or did it slip back into contraction? Fourth-quarter gross-domestic-product data will reveal all. Economists expect economic growth to have kept rising, though only at a low level of around 0.2%.

But even if the recovery isn’t very strong yet, there’s one thing to get optimistic about: For the first time since 2011, all four major euro-zone economies (Germany, France, Italy and Spain) should end the final quarter of 2013 in growth territory. In fact, Spain has already it saw a GDP rise of 0.3% in that quarter – the same pace expected from Germany. Actually, for most of the member states, the recession looks set to belong in the past.

Yellen testimony: Janet Yellen gives her first speech as Fed chief, in front of the House Financial Services Committee on Tuesday. On Thursday, it’s testimony to the Senate. Watch for comments on what’s next for quantitative easing — although most analysts expect her to underline that tapering’s on autopilot for now. Given Friday’s disappointing nonfarm-payrolls numbers, there’s a slender chance Yellen might talk about delaying the next cut to the bank’s bond-buying.

Chinese data: The last time Chinese data disappointed, global stock markets fell between 5% and 10%, emerging-markets currencies tumbled and uncertainty stalked the financial markets. And that was only back in January. A fresh set of numbers this week from the world’s second-largest economy will be scrutinized for clues to Chinese growth.

Plus, trade data for January are out from China on Wednesday. HSBC analysts predict a small contraction in export growth, alongside a weakening in import growth as the air seeps out of domestic demand. The country’s inflation numbers are out Friday, and the headline consumer-price index is forecast to ease to 2.2% year-on-year in January.

Earnings: We’re well into European earnings season, and so far it’s looking mixed. Roughly half of the Stoxx Europe 600
/quotes/zigman/2380150/realtimeXX:SXXP companies already reporting have beat earnings expectations, while 45% have missed, according to FactSet data.

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